On the Information Content of Decomposed Financial Return Series

Theo Berger (Uni Bremen)
Monday, January 13, 2014 - 2:00pm
Spandauer Strasse 1, Room 23

We decompose financial return series via wavelets into different time scales to analyse their information content regarding the volatility of the returns. Moreover, we investigate the information of each scale and discuss the decomposition of daily Value-at-Risk (VaR) forecasts. By an extensive empirical analysis, we analyse assets in calm and turmoil market times and show that daily VaR forecasts are mainly driven by the volatility which is captured by the scales comprising the short-run information. As well, we apply Extreme-Value-Theory to each scale and illustrate that the information which is stored in the short-run, linked via copulas, outperforms classical parametric VaR approaches which in- corporate all information available.